Newly revised policies adopted by the University of California Board of Regents provide an opportunity for health system boards to revisit the protocols they apply to review the appropriateness of outside business interests—including but not limited to outside board service—of senior executives. These types of protocols are typically premised on the core assumption that many such outside interests bring value to the organization and are to be encouraged.
The emphasis of the new UC policy revisions are three-fold: First, to reinforce the existing requirement that senior executive members must obtain approval for all outside activities, whether compensated or uncompensated, before they may engage in the activity or announce participation in the activity; Second, to strengthen the authorization process by adding an additional level of approval to the process by which an executive’s request to participate in the outside activity may be authorized (i.e., so that the executive’s request would be reviewed and signed off on by both his/her manager and by the next higher level manager as well); and Third, in addition to completing currently required disclosure forms, senior executives would be required to submit a statement describing the benefits that accrue to the University for any proposed outside activity.
As the UC policy notes, such outside service often inures to the overall benefit of the organization. Indeed, by the nature of their experience and perspectives, health system senior executives are frequently in demand, for various appropriate reasons, by outside business and charitable organizations as board members, consultants or advisors. However, such outside service can, in certain circumstances, present issues relating to conflicts of interest, conflicts of commitment and tax/compensation and benefits issues. For that reason, sophisticated internal policies, such as the revised UC policy, can be helpful in balancing the value of such outside service, with the legal and reputational issues that may potentially arise therefrom. As such it may be an appropriate agenda item for a future governance or executive compensation committee meeting.